Oh, uh, also this might have something to do with it. This is from Nightengale, if any tax experts think this is wrong, please chime in:
Shohei Ohtani’s decision to earn just $2 million a year certainly is a great benefit to the Dodgers’ payroll, but also a stroke of genius for tax repercussions.
If he’s not living in California once his deferred payments start, he will not be subjected to heavy California tax.
They can, if they want to. All they have to do is say “this a means of curcumventing the luxury tax” like they were reportedly going to do when the Padres were offering Judge 14/450 last offseason
The CBA doesn’t expressly allow contracts of a certain duration, though. There’s at least an argument that a 14-year-deal can be nixed as CBT manipulation. The CBA expressly permits deferrals of any amount.
We’ve gone from Olney complaining the lack of drama is bad for baseball to daily “the contract does WHAT?!” updates
I checked with the expert and this is correct. Wages deferred for 10 years or more are considered “earned” at the time they are paid, and taxes are subject to residency at that time. However, this does not consider California’s exit tax, which aims to cut down in such shenanigans. I don’t know currently where that law is an or where it will be in 10 years, but the goal is to prevent earning millions from California sources then skipping off to Texas when it’s time to pay the tax.
The negotiations for the next CBA needed in 2027 are going to be quite the spectacle.
This kind of payment structure should not be allowed.
We really should just call it what it is, a 20 year $700 million contract. Deferred payments usually have a bit of interest, this does not. Deferred payments are useually half or less the amount owned during the contract, not so here, not even fucking close. This is either a 20/700 or it’s 10/20 and then 10/680. How the CBA could let this joke be 10/460 for CBT purposes and leave $240 million off book is fucking outrageous.
The difference is that he has no obligation to the Dodgers after 10 years. He can sign with another team for $1billion, while the Dodgers still have to pay him $680 million. Neither MLB nor the MLBPA has any interest in changing this structure.
Why? Both sides are quite happy with such an arrangement. Why would it change?
Because 35% of the money is never going to go against the Dodgers payroll
Because, under the current rules, it’s blatant manipulation of the Competitive Balance Tax in Major League Baseball. If Shohei Ohtani and the Dodgers want to defer this volume of money until this 10-year contract expires, fine. But it’s absolute bullshit that it enables the Dodgers to save $24 million per year against their payroll counted towards the Competitive Balance Tax.
Ohtani’s AAV used for the Competitive Balance Tax needs to be $70 million, not the $46 million it will be. That’s a 34% reduction, which is absurd. Why have a luxury tax to punish big spenders if you are going to allow big-market teams to circumvent it in this manner?
It’s actually about 43%. 30/70 is roughly 42.9%.
Edit: This was wrong. Ohtani’s AAV for CBT purposes will be $46M, so it’s roughly a 34% reduction.
Unless there are new reports that the CBT hit is lower, it’ll be 46 against the CBT
Again…nobody on either side of the negotiations objects to this. I get that you do, and yes, it’s blatant manipulation. But neither side wants it to change.
My mistake. I misread the number in Passan’s tweet. $24 million is a little better, but it still doesn’t change the fact it’s crap that a team can circumvent the CBT this much by using deferred payments.
Well, there are 3 sides to this, the team, the player and MLB. I agree that the team and player obviously want it this way but MLB should want to change it. Not that they will, it’s the Dodgers.
They should, but they don’t. We, the fans, object to the A’s pinching salary and putting a crap team on the field, yet making huge profits. But the A’s don’t.
The Dodgers’ owner and Ohtani will not be only ones participating in negotiations for the new CBA needed in 2027. There’s obviously nothing that can be done today, but I’d be shocked if small-market owners didn’t fight against this level of CBT manipulation in the next CBA negotiations.
Small market owners are making a fortune from this system. They don’t care if their individual teams win. Fans do. Owners don’t.